Musings of a social media entrepreneur

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Google guilty of feathering their own nest? Probably.

There are some pretty choice comments doing the rounds of the social ecosystem relating to Google’s acquisition of Nest Labs. The main themes of the commentaries are poles apart; one group seem to think that paying $3.2 billion for a wireless controlled home thermostat is madness, while the other camp, smug in a self-satisfied way ‘ we get it and you dont ‘ kind of way, seem to suggest that this is the deal of the decade. I think that they are both right.

Digging deeper into the transaction, it’s clear that what Google have bought is IP rich, innovative and well staffed asset aiming at delivering increasing connectivity across multiple user settings. Nest is more than a central heating gizmo, or a means of managing your heating bills, its the shape of things to come, and while I loathe the phrase, a pioneer of the ‘internet of things’ . And that’s what Google have bought, their passport to the home, in much the same way that they’ve bought their way into the car, the TV and indeed, most other broad horizontal markets. But why Nest? Why now?

Well, let’s look at how Google make money – an they do make money, lots of it. Their core revenue streams are still search driven and ad-backed, although their foray into the world of transaction based revenues is not to be sniffed at, they are a money generating power house. But I am convinced that they have seen the writing on the wall in terms of their market limitations and as such, are broadening their commercial bases to take advantage of opportunities as they arise in new markets and across traditional business boundaries. Today, Nest is a pioneer of delivering remote control to the home, sure their first stab is a thermostatic control, but a pivot to all home infrastructure , devices, services and appliances is a logical next step. That pivot is massive and delivers market opportunity and real-world value. Imagine a billion buildings optimising costs on behalf of their owners, imagine the cost savings in terms of energy utilisation, more accurate fault diagnosis even remote problem resolution. And so on. This is an incredibly smart move from Google, they’ll own people (through identity, search and apps), communications, businesses, cars, houses, content and more importantly the data that glues these constituents together – they will, to all intents and purposes, be the internet of things OS, and that will enable them to pivot to new revenue models that see transactions, data exploitation and service delivery.

Yes, $3.2 billion is a huge number, but the for the chance to exist within the fabric of where we are, be that at work, at home, in the car or indeed, anywhere – it is cheap at half the price. Couple that with a great management team, some outstanding engineers and investors and a bucket of IP and you have the sale of the century. It’s Google third biggest acquisition ever, I believe that it is by far and away their most valuable.